News Letter – February 2017 – April 2017

Inside this edition

All information in this newsletter is to the best of the authorsʼ
knowledge true and accurate. No liability is assumed by the authors, or publishers, for any losses suffered
by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a
senior representative of the firm before acting upon this information.

The Bright-line Test

In 2015, the government introduced the “bright-line test”, a method which attempts to tighten
the property investment rules.

The bright-line test states that (subject to exemptions) any gain from disposing of residential land
within two years of acquiring it will be taxable. The test only applies to residential land. Residential land
is land that has a dwelling on it or could have a dwelling on it and does not include farms or business
premises.

The bright-line test applies where a personʼs “first interest” in residential land is
acquired on or after 1 October 2015. Generally, a person acquires their “first interest” on
the day they enter into an agreement to purchase residential land. The start and end dates may vary depending on
the circumstances of each transaction.

For standard sales, the two year bright-line period starts when title for the residential land is
transferred to a person under the Land Transfer Act 1952 and ends when the person signs a contract to sell the
land. In other situations, such as gifts, the date of “first interest” is the date the title is
registered by the donor and the end date is when the donee acquires registered title.

In simple terms, when a person purchases their main home after 1 October 2015 and then sells it within
two years, the income they receive for the sale is not taxable. A person can only have one main home to
which the bright-line test does not apply. If a person has more than one home, it is the home that the
person has the greatest connection with that is considered the main home for the purposes of the test.
Factors to assess when determining what constitutes a main home include; how often a person uses the
home, where their immediate family is, where their social and economic ties are and whether their
personal property is in the home.

The test is based on actual use of the property and not just a personʼs intention to use the
property as a main home. This exemption cannot be applied on a proportionate basis; therefore, if a house is
used only partly as a main home, the exemption does not apply. Where a main home is held in a trust, the
exemption is usually available; however, additional information is required to ensure trusts are not used to
avoid tax.

A habitual seller cannot use the main home exemption. If a person has used the main home exemption more
than twice in the previous two years at the time of selling their property, they are considered a habitual
seller. A habitual seller also includes a person who regularly acquires and disposes residential land. Where
property is inherited by a person as a beneficiary and they subsequently sell the property, the disposal will
not be subject to tax under the bright-line test. Where property is transferred between partners or spouses
under a property relationship agreement, there are no tax implications. However, if the property is subsequently
sold; the bright-line test may apply.

There have been cases where tax obligations arose through the disposal of residential property which did
not result in financial gain to the seller. As a result, it is highly recommended that specialist advice is
obtained in respect of all property transactions.

The Human Tissues Act

Until we are confronted with death, an emergency or illness, few of us are likely to turn our minds to
the interplay between the law, and how it affects the way we deal with a loved oneʼs remains, let
alone the choices we make or leave in respect of our own bodies.

The Human Tissue Act 2008 (“the Act”) currently governs the way human tissue is dealt within
New Zealand. Under the Act, Human Tissue (“tissue”) is defined as including any material that
is, or is derived from a body or material collected from a living individual. The definition is wide reaching
and encompasses amongst other matters an individualʼs organs, blood, skin or stem cells. Human embryoʼs,
including female eggs and sperm only qualify as human tissue in certain instances, including where human tissue
is collected for non-therapeutic purposes or in relation to exporting or importing human tissue.

The Act provides for compromise in its framework, by facilitating an ʻopt inʼ approach.
Informed consent or an informed objection may be given by the individual whose body the tissue may be collected
during their life and upon death. Where no informed consent has been given or no informed objection has been
raised, the Act provides a hierarchy of who may consent to tissue being collected from the body of a deceased,
including an individualʼs nominee(s), immediate family and then a close available relative.

Several assumptions exist within the Act, including:

a) that an individual over 16 years of age is capable of making an informed decision;

b) consent or objection is free and informed, immediate family members providing consent have
undertaken consultation with other immediate family members; and

c) that the individuals have taken into account the cultural beliefs of their families.

The cultural context for decision making in respect of donating or collecting tissue is woven throughout
the Act. There is a requirement and expectation on those who collect human tissue, that they will take into
account the spiritual needs, values and beliefs of the individual and their immediate family. Potential donators
are encouraged to consider the impact that their decision will have on their family following death.

In respect of expressing consent, certain obstacles exist in conveying ones wish to be a donor. We are
likely to be familiar with the ʻdonorʼ indications on a driver licence. However, ticking the
ʻdonorʼ box on a driver licence may not meet accepted requirements for obtaining informed
consent. This is primarily due to the contention that a driver licence has a life span of 10 years, and it may
not reflect an individualʼs wishes at the time of death. In contrast, a Will provides the unequivocal
wishes and intentions of a deceased person including an expression of consent.

The issue of expressing consent by way of a personʼs Will is that it may not be practical and
timely to ascertain certainty around the intention and consent of the deceased in times of emergency, or where a
timely decision is required. The Act has attempted to alleviate this problem by providing an ʻopt-in
registerʼ, where consent may be given after the fact and at a later date.

To ensure that your wishes and intentions are adhered to, we recommend that you discuss these matters
regularly with your family and lawyer.

Reckless Trading

The Companies Act 1993 (“the Act”) provides the framework that applies in respect of
directors' duties and reckless trading. The Act prohibits a director from allowing the business to be carried on
in a manner likely to create a substantial risk of serious loss to the companyʼs creditors. Any director
who fails to exercise necessary care or prudence may be found personally liable for reckless trading.

New Zealandʼs largest award against a director for reckless trading was made out in the Lower v
Traveller [2005] NZSC 79 case. The High Court in this particular case (and subsequently the Court of
Appeal) determined that the director was responsible for $8.4 million in damages.

Reckless trading refers to a director taking illegitimate business risks. In determining the legitimacy
of such risks, an objective assessment is undertaken, with focus on the way the business is done, and
whether the directorʼs methods have created a substantial risk of serious loss.

The courts have stipulated that a directorʼs “sober” assessment of the ongoing
character of the company and its likely future income prospects is required when a company hits troubled
waters.

A two pronged approach to determine a directorʼs liability has been adopted, firstly whether there
should be liability, and if required, what relief is appropriate. Material factors to assess that a
business risk is legitimate include whether:

The risk was fully understood by those whose funds were at risk;

The company was insolvent and continued to trade over an extended period;

The directorʼs conduct was normal, in its ordinary course of business; and

The primary persons interested in the insolvent company are the creditors rather than the
shareholders.

Liability for reckless trading can relate to an isolated transaction. The company does not need to be in
liquidation and no knowledge of the reckless trading is required.

There are limitations to the Act. The courts have found that recklessness requires more than mere
negligence; and a director must either be willfully negligent or make a conscious decision to allow the business
to be conducted in a manner that causes substantial risk of serious loss to the companyʼs creditors. A
director may also avoid liability where a director has the full support of the creditors and the creditors were
fully aware of risks which were incidentally substantial.

One of the criticisms of reckless trading is that it does not allow for high risk company trade where
there are prospects of large profit margins. Some do not consider this point well founded, as arguably a risk
of loss is reasonably balanced by a prospect of gain. It appears this point is yet to be decisively settled at
common law. The wording of the Act does not leave room for a balancing exercise, however the Courts have
acknowledged certain academic articles which analyse the duties of directors under the Companies Act 1993,
proposing their preparedness to apply such an assessment to balance risk and reward.

Small Passenger Services Review

In April 2016, Uber (the private passenger service operating via a social media smartphone application)
came under fire from the New Zealand Government, amidst fears that Uber was changing its rules by dropping
its requirements to have a passenger endorsement for their licensed drivers or a certificate of fitness for
their cars. Uber was able to do so via some gaps in the relevant law. It was clear that the law was unable to
manage this new and fast growing development.

It transpired that Uber drivers were not legally required to carry any licenses or endorsements which
were imposed on ordinary taxi drivers. As a result Uber drivers had lower overheads and were not obliged to
follow any formal regulations, despite the fact that they provided services almost identical to those offered by
taxi drivers. This fact was clearly a concern for taxi drivers.

Further, and more concerning for the general public, Uber was legally permitted to engage drivers who
were convicted of serious crimes, or who were medically unfit to drive to carry passengers. The law was in
need of modernisation and on 12 September 2016, Transport Minister Simon Bridges introduced the Land Transport
Amendment Bill to Parliament in an effort to update the law applying to small passenger services, update the
rules for heavy vehicles and generals improve road safety.

The Bill, together with amendments to land transport rules and regulations, aims to provide direction and
much needed guidance to encompass new technologies including smartphone apps. The effect of modernising these
regulations by way of the Bill would ensure that they are flexible enough to accommodate new business models,
while managing safety risks.

The proposed changes aim to ensure an effective small passenger service sector making services offered by
that sector safe and accessible; improving the effectiveness of the transport system and helping to reduce
congestion. The overarching purpose of the changes is to encourage innovation in transport while managing safety
risks to drivers and passengers.

To achieve these lofty goals, the Bill makes it an absolute requirement for all transport service drivers
to be licensed. Currently drivers seeking to obtain a ʻPʼ endorsement license (Passenger
Endorsement License) must hold a passenger endorsement certificate allowing the driver to be "hired" and the
change will mean that Uber drivers must do the same.

In addition, Uber drivers will need to, as part of obtaining the passenger endorsement certificate,
undergo a "fit and proper person check", which is repeated every year by NZTA. The check examines things such as
traffic offending, previous complaints, serious behavioural issues, and always includes a police check for
criminal offending, including overseas convictions.

The Bill has made it through its first reading in Parliament (15 September 2016) and appears to be on
track to become law relatively soon. In any event it is likely that the New Zealand Government will look to
implement updated legislation and regulatory requirements in other industries in order to meet the demands of
existing and future disruptive emerging services. It would appear that Uber has become a much needed catalyst
for legislative modernisation.

I have been named an executor of a will, what do I do now?

When a loved one passes away it can be a stressful time for the family, which can be made more difficult
when the deceased has not left a Will. Where the deceased has left a Will they will have named their executor
or executors (their representative(s)) in that Will.

The role of an executor is to administer the deceasedʼs estate. This may include settling
outstanding debts owed by the deceased, and distributing the deceasedʼs estate in accordance with the
deceasedʼs Will.

Before an executor can administer the estate of the deceased, they must first obtain Probate.

What is “probate”?

Probate is a court order determining the Will of the deceased as being true and authentic. The
executor(s) is/are appointed in this order. Upon the making of the order, the executor(s) then has/have the
legal authority to deal with the deceasedʼs estate.

How do I apply for probate?

The executor(s) named in a Will must make an application in writing to the Wellington High Court for
probate. The application must be in a specific format, as prescribed by a set of rules called the High Court
Rules.

An application for probate may be filed in one of two ways either by way of 'probate in common form' or
by way of ʻprobate in solemn formʼ.

An application for ʻprobate in common formʼ is usually made on a ʻwithout noticeʼ
basis, where the application is made without notifying anyone else, on the basis that no one will
contest the Will.

In the event that it is highly likely that someone will contest the Will, an application for ʻprobate
in solemn formʼ will need to be filed. In these circumstances the relevant parties will be
notified of the application and a trial at High Court will proceed, for which the parties will probably need
legal advice.

What would I need to make an application for Probate? $200.00; this would need to be paid together with
the filing of the following documents:

The original Will (not a copy);

An application for probate in common or solemn form;

A sworn statement (affidavit) from the executor(s) which includes the following information;

The person who made the Will has died;

They knew the deceased;

Where the deceased was living when they died; and

Confirmation that the Will is the deceasedʼs last Will.

How long does this process take?

If the Application has been drafted correctly, in the prescribed from, and filed acceptably with the
Wellington High Court, it may take four to six weeks to process the application. However, it could take
longer if the High Court is busy or the application is complicated.

This timeframe may also be drawn-out in the event that the application has not been drafted correctly
and/or the High Court raises issues with the application. Delays of this nature have the potential to cause a
number of problems between the beneficiaries, and can affect an executor's ability to administer the deceasedʼs
estate, particularly if immediate action is required (which it often is).

With that in mind, legal advice should obtained when making an application for Probate.

Snippets

Queenʼs Chain

Historically, the term ʻchainʼ has been used to express a unit of measurement in respect of
land and distance. Coincidently, the “Queenʼs Chain” describes the kilometres of Crown
land which exists throughout New Zealand to provide the public with access to coastlines, rivers, lakes and
native bush.

In reality, the Queenʼs Chain is a term describing what is now generally accepted as the marginal
strips of land or esplanade strips, which are normally 20 metres wide and adjoining many lakes, rivers
and the foreshore. It can also include land which has been retained by the Crown for conservation purposes.
These lands are usually controlled by the Department of Conservation. In some instances, this means there are
restrictions on public access. These restrictions are most commonly imposed to protect sensitive areas or
endangered animals.

However, there is still a large amount of privately owned land around New Zealand which is not owned by
the Crown. The private rights attached to such land are referred to as “riparian rights” and
usually extend well into the water, granting unrestricted access to the owner. In any event, whether the land is
considered to be part of the “Queenʼs Chain” or privately owned, government imposed
legislation still applies.

The Queenʼs Chain becomes a topic of contention when it comes to public access to waterways and
bush and there is often an assumption that the Queenʼs Chain applies; when in many cases the adjacent
landowner actually holds riparian rights. Archives New Zealand holds records for all Crown land (including land
subject to the Queenʼs Chain) which can be ordered and/or viewed in person. Information on accessing such
records may be at this address: http://archives.govt.nz/research

The Ombudsmen

The Office of the Ombudsman is an independent authority which handles complaints and investigates New
Zealandʼs government agencies.

Investigations are initiated following receipt of a complaint or on the Offices' own initiative to
address wider administrative issues.

The Office manages complaints from individuals about the decisions and administrative acts of government
agencies including district health boards and local government. This includes official information
complaints which arise where a request is made to a government agency. This may be to obtain information and the
applicant is not happy with the response, or the information is not provided within 20 days.

On receipt of a written complaint, the Office may either resolve it without further investigation or
investigate further and form an opinion on whether or not the agency has acted unreasonably. Agencies
are not required to implement the Offices' recommendations; however, usually they are accepted.

The Office also provides guidance and training to agencies before they implement policies to mitigate
future complaints against them by the public. Complaints relating to private individuals or decisions by
tribunals and courts are amongst some areas that are outside the Offices' jurisdiction.

The Office may refuse to investigate a complaint if alternative remedies are available, if the complaint
is over a year old, if the complainant lacks standing, or if the complaint is made in bad faith.

The Office provides a valuable and vital public service. More information on the Office, its services
and how to access them may be found at this address: http://www.ombudsman.parliament.nz

If you have any questions about the newsletter items, please Contact Us, we are here to
help.